True / False
1. Negotiable instruments are important to business because they allow for the orderly creation and transfer of rights
to the payment of money.
a. True
b. False
2. Negotiable instruments began many years ago as a written promise or order to pay a certain sum of money.
a. True
b. False
3. Before the UCC, negotiable instruments could not be bought or sold.
a. True
b. False
4. Historically, promises to pay a debt owed were allowed to be assigned to a third party, but were usually done so at
a discount.
a. True
b. False
5. A negotiable instrument is a promise by one party to pay a undefined sum of money to another party. There are
two parties: the maker and the payee. While the amount to be paid may vary, the date of payment must be set at a
specific time in the future.
a. True
b. False
6. Once issued, a negotiable instrument can be transferred by assignment or by negotiation to another party.
a. True
b. False
7. A negotiable instrument may be transferred in two basic ways. If the instrument is made “to the order” of the
payee, the payee must (1) endorse the instrument and (2) deliver the instrument to a third party. If the instrument is
made “to bearer,” the party in possession of the instrument is required only to deliver it to transfer it.
a. True
b. False
8. The maker or the drawer may create a bearer instrument by using the following language: “to bearer” or “to the
order of bearer.”
a. True
b. False
9. Negotiable instruments payable “to bearer” are considered the safest form.
a. True
b. False
10. Although commercial paper may be negotiable or non-negotiable, a dispute could be resolved differently depending
on whether the instrument is categorized as negotiable or non-negotiable.
a. True
b. False
11. If a commercial instrument is nonnegotiable, it falls under the common law, not the UCC.
a. True
b. False
12. To meet the UCC‘s requirements for negotiability, an instrument must be an unconditional oral promise to pay.
a. True
b. False
13. To meet the UCC‘s requirements for negotiability, an instrument must be in writing.
a. True
b. False
14. To meet the UCC’s requirements for negotiability, an instrument must state a specific sum of money.
a. True
b. False
15. To meet the UCC’s requirements for negotiability, an instrument must be payable to a specific party.
a. True
b. False
16. In countries under Islamic law, financial instruments have been invented to avoid the restrictions on interest rates,
but have much the same effect.
a. True
b. False
17. If an instrument is negotiable under the UCC, the instrument may be freely traded in the market place without
concern for any existing contract responsibilities, so long as the instrument is in the possession of a holder in due
course.
a. True
b. False
18. The person who has a negotiable instrument may be either a holder in due course or an ordinary holder.
a. True
b. False
19. To be ordinary holder of a negotiable instrument, the holder must give value for it, take it without knowledge that it
is overdue or defective, and must take it in good faith.
a. True
b. False
20. Not all promises to pay are negotiable instruments.
a. True
b. False
21. Orders to pay include drafts and checks.
a. True
b. False
22. Orders to pay include notes and certificates of deposit.
a. True
b. False
23. Promises to pay include drafts and checks.
a. True
b. False
24. Promises to pay include notes and certificates of deposit.
a. True
b. False
25. The party who issues or creates a document that requests payment, probably from a bank, is called the drawer.
a. True
b. False
26. The party who issues or creates a document that requests payment, probably from a bank, is called the drawee.
a. True
b. False
27. The party who agrees to make a payment to another party, based on a document presented to it, such as a bank, is
called the drawee.
a. True
b. False
28. The party who agrees to make a payment to another party, based on a document presented to it, such as a bank, is
called the drawer.
a. True
b. False
29. The drawee owes money to the drawer in a negotiable instrument.
a. True
b. False
30. The drawer owes money to the drawee in a negotiable instrument.
a. True
b. False
31. The party to receive a payment from a negotiable instrument is called the payee.
a. True
b. False
32. Under Article 3 of the UCC, a check is an unconditional written order to pay that involves three parties in distinct
capacities: drawer, drawee, and payee. The drawee must be a bank. Payment must be “on demand.”
a. True
b. False
33. A check is a draft drawn on a bank and payable on demand.
a. True
b. False
34. For a check, the bank is the drawee.
a. True
b. False
35. A cashier’s check is a form of check in which the bank is both the drawer and the drawee.
a. True
b. False
36. In Associated Home and RV Sales v. Bank of Belen, where a bookkeeper for Associated forged many checks
on Associated’s account at the bank, and Associated sued the bank to recover the lost funds, the appeals court
held the bank could be liable under the UCC for paying the checks.
a. True
b. False
37. In Associated Home and RV Sales v. Bank of Belen, where a bookkeeper for Associated forged many checks
on Associated’s account at the bank, and Associated sued the bank to recover the lost funds, the appeals court
held the bank not liable under the UCC because the bookkeeper was authorized to sign and cash checks.
a. True
b. False
38. Under Article 3 of the UCC, a note is a promise by one party to pay a certain sum of money to another party. Two
parties are involved: the maker and the payee. Payment may be set at some time in the future.
a. True
b. False
39. A note involves two parties, the maker and the payee. Payment must be on demand.
a. True
b. False
40. When personal property is used to back up a note, it is called a collateral note.
a. True
b. False
41. When real estate is used to back up a note, it is called a collateral note.
a. True
b. False
42. When the maker of a note promises to repay the note at specific dates over time, it is called an installment note.
a. True
b. False
43. When the maker of a note promises to repay the note in specific installments over time, it is a balloon note.
a. True
b. False
44. A balloon note has one large payment up front then a series of smaller payments over time.
a. True
b. False
45. Under Article 3 of the UCC, a draft is a conditional promise to pay that involves three parties in distinct capacities:
drawer, drawee, and payee.
a. True
b. False
46. In a draft, the drawee is the party ordered to pay a certain sum of money to a third party.
a. True
b. False
47. A bill of exchange is a draft that guarantees payment for goods in international trade.
a. True
b. False
48. In a term draft or time draft, the promise to pay expires in the future, usually 60 or 90 days.
a. True
b. False
49. When the payee is concerned about the quality of a draft, it may be submitted to the drawee for confirmation. That
is called an acceptance or bankers’ acceptance.
a. True
b. False
50. If a draft is sold to another party before it comes due, it is discounted.
a. True
b. False
51. Certificates of deposit are not negotiable because they are specific contracts between banks and payees.
a. True
b. False
52. An acknowledgment by a bank that it has received money from a customer with a promise by the bank that it will
repay the money received at a specified date is a certificate of deposit.
a. True
b. False
53. An acknowledgment by a bank that it has received money from a customer with a promise by the bank that it will
repay the money received at a specified date is a note.
a. True
b. False
54. A bank is the maker of a certificate of deposit.
a. True
b. False
55. Credit terms for debtors must include the payment dates of the debt.
a. True
b. False
56. The amount of money owed in a debt is called the principal.
a. True
b. False
57. Collateral is the one term in a debt instrument that always must be specified.
a. True
b. False
58. The party who borrows money (gets credit) is called the creditor.
a. True
b. False
59. Smaller businesses tend to rely more on equity financing for financial backing.
a. True
b. False
60. General economic conditions at the time a loan is made will be taken into account in setting credit standards.
a. True
b. False
61. Only individuals may purchase credit reports.
a. True
b. False
62. Banks provide credit information about customers, but by law it may only be about their checking accounts.
a. True
b. False
63. Trade associations may provide information about the credit experience of their members.
a. True
b. False
64. An open account is the least common form of business credit account.
a. True
b. False
65. A revolving account requires the debtor to pay in full within a fixed time period.
a. True
b. False